Lessons from a small bank

May 4, 2009
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Sometimes one extreme sheds light on another extreme, and in a day when the nationâ??s financial system is under the microscope for making all manner of rotten loans, the experience of tiny Kentland Federal Savings & Loan Association might be instructive.

The tiny thrift north of Lafayette hasnâ??t lost a loan in at least 20 years. Thatâ??s how long President and CEO James Sammons has worked at the bank.

Most bank observers would quickly point out that Kentland is turning out a weak return on assets. The institution, which as a mutual savings bank is owned by its depositors, certainly isnâ??t emphasizing growth. Moreover, Kentland only makes first mortgages â?? no business loans.

Yet, Sammons, the fourth family member to run the institution since its founding in 1920, knows a thing or two about who will make their payments and who wonâ??t.

Sammons scrutinizes assets, liabilities and credit history. And he asks borrowers if he can talk with other places where theyâ??ve borrowed money.

But his efforts go much further. He looks for family history and personal character that indicate whether the borrower will work with the bank in the event of a job loss.

When pressed to explain how he make the judgments, Sammons strains for words.

â??Some of itâ??s personality. Some of itâ??s knowing family,â?? he says. â??You get a feel for a personâ??s personality and their ability to be honest with you when something comes up.â??

What can big banks learn from places like Kentland? Do bankers know enough about their borrowers? How would you feel sitting across a desk from Sammons?
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  • Those big banks you're asking about have long-ago lost their ability to learn from institutions that do things the old fashioned way. For you younger readers, that means the right way.

    I recall when I first started my banking career in 1970, I noted how many grey haired bankers there were. They learned and established themselves and knew how to run their business. You might have an SVP as a branch manager. That person was well known, generally renowned in his community area, and looked up to by business owners and long-term clients.

    Please, someone tell me where I can find one of those Icons these days. I would like to meet him or her.

    Then came the years of acquisitions. Borrowing money to buy smaller banks and grow became more important that managing client relationships and maintaining well-respected, knowledgeable staff. As the now larger banks had to find ways to cut expenses to pay for their expensive acquisitions, the tried and tested bankers were the first to go.

    Greed and growth rules!

    So, here are the huge, conglomerate banks playing their game of monkey see, monkey do and now they are forced into finding more creative ways to make a profit to please the Wall Street Analysts. Next, here comes the Federal Government with their brilliant plan, called the Community Reinvestment Act that requires those banks that play the Freddie Mac and Fannie Mae game to lend money to whom? Why you guessed it - no one that would ever have passed muster with the former grey haired bankers and those that know how to evaluate good credit risks.

    So here we are today with a failed banking system, still in near collapse with all of their creative accounting, intelligent money twisting stratagies, and they are still scratching their heads saying where did we go wrong and what do we do now? as they continue to blast the public with ridiculous refinance offers and credit card applications. They've learned little if anything.

    It will take a lot of years to grow those young guns into becoming grey haired bankers to even come close to what banking used to be.

    Thank goodness for Kentland Savings and Loan Association and the little guys who still understand how to do business the right way. And they're not worried about how to please the Wall Street Analysts.

    Oh, for the good 'ol days...........
  • Hmmmmm..... Well said, could not agree with you more.

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